Public Act 095-0616
 
SB1621 Enrolled LRB095 10598 JAM 30820 b

    AN ACT concerning finance.
 
    WHEREAS, A resolution of the United Nations Security
Council imposes sanctions on Iran for its failure to suspend
its uranium-enrichment activities; and
 
    WHEREAS, The United Nations Security Council voted
unanimously for an additional embargo on Iranian arms exports,
which is a freeze on assets abroad of an expanded list of
individuals and companies involved in Iran's nuclear and
ballistic missile programs and calls for nations and
institutions to bar new grants or loans to Iran except for
humanitarian and developmental purposes; and
 
    WHEREAS, Iran's financial ability to pay its debts to
foreign entities involved in the petroleum-energy sector
amounting to more than $20 million is put at risk by the Iran
and Libya Sanctions Act embargo and sanctions; and
 
    WHEREAS, Foreign entities have invested in Iran's
petroleum-energy sector despite United States and United
Nations sanctions against Iran; and
 
    WHEREAS, All United States and foreign entities that have
invested more than $20 million in Iran's energy sector since
August 5, 1996, are subject to sanctions under United States
law pursuant to the Iran and Libya Sanctions Act of 1996; and
 
    WHEREAS, The United States renewed the Iran and Libya
Sanctions Act of 1996 in 2001 and 2006; and
 
    WHEREAS, While divestiture should be considered with the
intent to improve investment performance and, by the rules of
prudence, fiduciaries must take into account all relevant
substantive factors in arriving at an investment decision; and
 
    WHEREAS, Divestiture from markets that are vulnerable to
embargo, loan restrictions, and sanctions from the United
States and the international community, including the United
Nations Security Council, is in accordance with the rules of
prudence; and
 
    WHEREAS, The State of Illinois is deeply concerned about
investments in publicly traded companies that have business
activities in and ties to Iran's petroleum-energy sector as a
financial risk to the shareholders; and
 
    WHEREAS, By investing in publicly traded companies having
ties to Iran's petroleum-energy sector, retirement systems are
putting the funds they oversee at substantial financial risk;
and
 
    WHEREAS, To protect Illinois' assets, it is in the best
interest of the State to enact a statutory prohibition
regarding investments in or with Iran's petroleum-energy
sector; therefore
 
    Be it enacted by the People of the State of Illinois,
represented in the General Assembly:
 
    Section 5. The Illinois Procurement Code is amended by
adding Section 50-36 as follows:
 
    (30 ILCS 500/50-36 new)
    Sec. 50-36. Disclosure of business in Iran.
    (a) As used in this Section:
    "Business operations" means engaging in commerce in any
form in Iran, including, but not limited to, acquiring,
developing, maintaining, owning, selling, possessing, leasing,
or operating equipment, facilities, personnel, products,
services, personal property, real property, or any other
apparatus of business or commerce.
    "Company" means any sole proprietorship, organization,
association, corporation, partnership, joint venture, limited
partnership, limited liability partnership, limited liability
company, or other entity or business association, including all
wholly owned subsidiaries, majority-owned subsidiaries, parent
companies, or affiliates of those entities or business
associations, that exists for the purpose of making profit.
    "Mineral-extraction activities" include exploring,
extracting, processing, transporting, or wholesale selling or
trading of elemental minerals or associated metal alloys or
oxides (ore), including gold, copper, chromium, chromite,
diamonds, iron, iron ore, silver, tungsten, uranium, and zinc.
    "Oil-related activities" include, but are not limited to,
owning rights to oil blocks; exporting, extracting, producing,
refining, processing, exploring for, transporting, selling, or
trading of oil; and constructing, maintaining, or operating a
pipeline, refinery, or other oil-field infrastructure. The
mere retail sale of gasoline and related consumer products is
not considered an oil-related activity.
    "Petroleum resources" means petroleum, petroleum
byproducts, or natural gas.
    "Substantial action" means adopting, publicizing, and
implementing a formal plan to cease scrutinized business
operations within one year and to refrain from any such new
business operations.
    (b) Each bid, offer, or proposal submitted for a State
contract, other than a small purchase defined in Section 20-20,
shall include a disclosure of whether or not the bidder,
offeror, or proposing entity, or any of its corporate parents
or subsidiaries, within the 24 months before submission of the
bid, offer, or proposal had business operations that involved
contracts with or provision of supplies or services to the
Government of Iran, companies in which the Government of Iran
has any direct or indirect equity share, consortiums or
projects commissioned by the Government of Iran, or companies
involved in consortiums or projects commissioned by the
Government of Iran and:
        (1) more than 10% of the company's revenues produced in
    or assets located in Iran involve oil-related activities or
    mineral-extraction activities; less than 75% of the
    company's revenues produced in or assets located in Iran
    involve contracts with or provision of oil-related or
    mineral-extraction products or services to the Government
    of Iran or a project or consortium created exclusively by
    that government; and the company has failed to take
    substantial action; or
        (2) the company has, on or after August 5, 1996, made
    an investment of $20 million or more, or any combination of
    investments of at least $10 million each that in the
    aggregate equals or exceeds $20 million in any 12-month
    period, that directly or significantly contributes to the
    enhancement of Iran's ability to develop petroleum
    resources of Iran.
    (c) A bid, offer, or proposal that does not include the
disclosure required by subsection (b) shall not be considered
responsive. A chief procurement officer may consider the
disclosure when evaluating the bid, offer, or proposal or
awarding the contract.
    (d) Each chief procurement officer shall provide the State
Comptroller with the name of each entity disclosed under
subsection (b) as doing business or having done business in
Iran. The State Comptroller shall post that information on his
or her official website.
 
    Section 10. The Illinois Pension Code is amended by adding
Section 1-110.10 as follows:
 
    (40 ILCS 5/1-110.10 new)
    Sec. 1-110.10. Transactions prohibited by retirement
systems; Iran.
    (a) As used in this Section:
    "Active business operations" means all business operations
that are not inactive business operations.
    "Business operations" means engaging in commerce in any
form in Iran, including, but not limited to, acquiring,
developing, maintaining, owning, selling, possessing, leasing,
or operating equipment, facilities, personnel, products,
services, personal property, real property, or any other
apparatus of business or commerce.
    "Company" means any sole proprietorship, organization,
association, corporation, partnership, joint venture, limited
partnership, limited liability partnership, limited liability
company, or other entity or business association, including all
wholly owned subsidiaries, majority-owned subsidiaries, parent
companies, or affiliates of those entities or business
associations, that exists for the purpose of making profit.
    "Direct holdings" in a company means all securities of that
company that are held directly by the retirement system or in
an account or fund in which the retirement system owns all
shares or interests.
    "Inactive business operations" means the mere continued
holding or renewal of rights to property previously operated
for the purpose of generating revenues but not presently
deployed for that purpose.
    "Indirect holdings" in a company means all securities of
that company which are held in an account or fund, such as a
mutual fund, managed by one or more persons not employed by the
retirement system, in which the retirement system owns shares
or interests together with other investors not subject to the
provisions of this Section.
    "Mineral-extraction activities" include exploring,
extracting, processing, transporting, or wholesale selling or
trading of elemental minerals or associated metal alloys or
oxides (ore), including gold, copper, chromium, chromite,
diamonds, iron, iron ore, silver, tungsten, uranium, and zinc.
    "Oil-related activities" include, but are not limited to,
owning rights to oil blocks; exporting, extracting, producing,
refining, processing, exploring for, transporting, selling, or
trading of oil; and constructing, maintaining, or operating a
pipeline, refinery, or other oil-field infrastructure. The
mere retail sale of gasoline and related consumer products is
not considered an oil-related activity.
    "Petroleum resources" means petroleum, petroleum
byproducts, or natural gas.
    "Private market fund" means any private equity fund,
private equity fund of funds, venture capital fund, hedge fund,
hedge fund of funds, real estate fund, or other investment
vehicle that is not publicly traded.
    "Retirement system" means the State Employees' Retirement
System of Illinois, the Judges Retirement System of Illinois,
the General Assembly Retirement System, the State Universities
Retirement System, and the Teachers' Retirement System of the
State of Illinois.
    "Scrutinized business operations" means business
operations that have caused a company to become a scrutinized
company.
    "Scrutinized company" means the company has business
operations that involve contracts with or provision of supplies
or services to the Government of Iran, companies in which the
Government of Iran has any direct or indirect equity share,
consortiums or projects commissioned by the Government of Iran,
or companies involved in consortiums or projects commissioned
by the Government of Iran and:
        (1) more than 10% of the company's revenues produced in
    or assets located in Iran involve oil-related activities or
    mineral-extraction activities; less than 75% of the
    company's revenues produced in or assets located in Iran
    involve contracts with or provision of oil-related or
    mineral-extraction products or services to the Government
    of Iran or a project or consortium created exclusively by
    that government; and the company has failed to take
    substantial action; or
        (2) the company has, on or after August 5, 1996, made
    an investment of $20 million or more, or any combination of
    investments of at least $10 million each that in the
    aggregate equals or exceeds $20 million in any 12-month
    period, that directly or significantly contributes to the
    enhancement of Iran's ability to develop petroleum
    resources of Iran.
    "Substantial action" means adopting, publicizing, and
implementing a formal plan to cease scrutinized business
operations within one year and to refrain from any such new
business operations.
    (b) Within 90 days after the effective date of this
Section, a retirement system shall make its best efforts to
identify all scrutinized companies in which the retirement
system has direct or indirect holdings.
    These efforts shall include the following, as appropriate
in the retirement system's judgment:
        (1) reviewing and relying on publicly available
    information regarding companies having business operations
    in Iran, including information provided by nonprofit
    organizations, research firms, international
    organizations, and government entities;
        (2) contacting asset managers contracted by the
    retirement system that invest in companies having business
    operations in Iran; and
        (3) Contacting other institutional investors that have
    divested from or engaged with companies that have business
    operations in Iran.
    The retirement system may retain an independent research
firm to identify scrutinized companies in which the retirement
system has direct or indirect holdings. By the first meeting of
the retirement system following the 90-day period described in
this subsection (b), the retirement system shall assemble all
scrutinized companies identified into a scrutinized companies
list.
    The retirement system shall update the scrutinized
companies list annually based on evolving information from,
among other sources, those listed in this subsection (b).
    (c) The retirement system shall adhere to the following
procedures for companies on the scrutinized companies list:
        (1) The retirement system shall determine the
    companies on the scrutinized companies list in which the
    retirement system owns direct or indirect holdings.
        (2) For each company identified in item (1) of this
    subsection (c) that has only inactive business operations,
    the retirement system shall send a written notice informing
    the company of this Section and encouraging it to continue
    to refrain from initiating active business operations in
    Iran until it is able to avoid scrutinized business
    operations. The retirement system shall continue such
    correspondence semiannually.
        (3) For each company newly identified in item (1) of
    this subsection (c) that has active business operations,
    the retirement system shall send a written notice informing
    the company of its scrutinized company status and that it
    may become subject to divestment by the retirement system.
    The notice must inform the company of the opportunity to
    clarify its Iran-related activities and encourage the
    company, within 90 days, to cease its scrutinized business
    operations or convert such operations to inactive business
    operations in order to avoid qualifying for divestment by
    the retirement system.
        (4) If, within 90 days after the retirement system's
    first engagement with a company pursuant to this subsection
    (c), that company ceases scrutinized business operations,
    the company shall be removed from the scrutinized companies
    list and the provisions of this Section shall cease to
    apply to it unless it resumes scrutinized business
    operations. If, within 90 days after the retirement
    system's first engagement, the company converts its
    scrutinized active business operations to inactive
    business operations, the company is subject to all
    provisions relating thereto.
    (d) If, after 90 days following the retirement system's
first engagement with a company pursuant to subsection (c), the
company continues to have scrutinized active business
operations, and only while such company continues to have
scrutinized active business operations, the retirement system
shall sell, redeem, divest, or withdraw all publicly traded
securities of the company, except as provided in paragraph (f),
from the retirement system's assets under management within 12
months after the company's most recent appearance on the
scrutinized companies list.
    If a company that ceased scrutinized active business
operations following engagement pursuant to subsection (c)
resumes such operations, this subsection (d) immediately
applies, and the retirement system shall send a written notice
to the company. The company shall also be immediately
reintroduced onto the scrutinized companies list.
    (e) The retirement system may not acquire securities of
companies on the scrutinized companies list that have active
business operations, except as provided in subsection (f).
    (f) A company that the United States Government
affirmatively declares to be excluded from its present or any
future federal sanctions regime relating to Iran is not subject
to divestment or the investment prohibition pursuant to
subsections (d) and (e).
    (g) Notwithstanding the provisions of this Section,
paragraphs (d) and (e) do not apply to indirect holdings in a
private market fund. However, the retirement system shall
submit letters to the managers of those investment funds
containing companies that have scrutinized active business
operations requesting that they consider removing the
companies from the fund or create a similar actively managed
fund having indirect holdings devoid of the companies. If the
manager creates a similar fund, the retirement system shall
replace all applicable investments with investments in the
similar fund in an expedited timeframe consistent with prudent
investing standards.
    (h) The retirement system shall file a report with the
Public Pension Division of the Department of Financial and
Professional Regulation that includes the scrutinized
companies list within 30 days after the list is created. This
report shall be made available to the public.
    The retirement system shall file an annual report with the
Public Pension Division, which shall be made available to the
public, that includes all of the following:
        (1) A summary of correspondence with companies engaged
    by the retirement system under items (2) and (3) of
    subsection (c).
        (2) All investments sold, redeemed, divested, or
    withdrawn in compliance with subsection (d).
        (3) All prohibited investments under subsection (e).
        (4) A summary of correspondence with private market
    funds notified under subsection (g).
    (i) This Section expires upon the occurrence of any of the
following:
        (1) The United States revokes all sanctions imposed
    against the Government of Iran.
        (2) The Congress or President of the United States
    declares that the Government of Iran has ceased to acquire
    weapons of mass destruction and to support international
    terrorism.
        (3) The Congress or President of the United States,
    through legislation or executive order, declares that
    mandatory divestment of the type provided for in this
    Section interferes with the conduct of United States
    foreign policy.
    (j) With respect to actions taken in compliance with this
Act, including all good-faith determinations regarding
companies as required by this Act, the retirement system is
exempt from any conflicting statutory or common law
obligations, including any fiduciary duties under this Article
and any obligations with respect to choice of asset managers,
investment funds, or investments for the retirement system's
securities portfolios.
    (k) Notwithstanding any other provision of this Section to
the contrary, the retirement system may cease divesting from
scrutinized companies pursuant to subsection (d) or reinvest in
scrutinized companies from which it divested pursuant to
subsection (d) if clear and convincing evidence shows that the
value of investments in scrutinized companies with active
scrutinized business operations becomes equal to or less than
0.5% of the market value of all assets under management by the
retirement system. Cessation of divestment, reinvestment, or
any subsequent ongoing investment authorized by this Section is
limited to the minimum steps necessary to avoid the contingency
set forth in this subsection (k). For any cessation of
divestment, reinvestment, or subsequent ongoing investment
authorized by this Section, the retirement system shall provide
a written report to the Public Pension Division in advance of
initial reinvestment, updated semiannually thereafter as
applicable, setting forth the reasons and justification,
supported by clear and convincing evidence, for its decisions
to cease divestment, reinvest, or remain invested in companies
having scrutinized active business operations. This Section
does not apply to reinvestment in companies on the grounds that
they have ceased to have scrutinized active business
operations.
    (l) If any provision of this Section or its application to
any person or circumstance is held invalid, the invalidity does
not affect other provisions or applications of the Act which
can be given effect without the invalid provision or
application, and to this end the provisions of this Section are
severable.
 
    Section 99. Effective date. This Act takes effect on
January 1, 2008.